WEAKNESSES

Risk assessment

Low growth, driven by tourism, mining and investment

The mining sector (bauxite) and services (75% of GDP), mainly tourism-related (construction and transport), will continue to spearhead growth, which remains stymied by bottlenecks, including crime, high public debt, lack of investment and sensitivity to external shocks, particularly climate-related. Accordingly, in 2019, mining and services will receive the bulk of private investment, which is expected to increase thanks to low key interest rates and the introduction in 2019 of a Microcredit Act aimed at promoting this practice among the country's SMEs (97% of food and service companies). The willingness of foreign companies to outsource part of their activities and the gradual increase in tourism in this region of the world will also encourage FDI, while the rate of growth in public investment and spending is expected to slow significantly, as public debt is too high. The development of the tourism sector, and services in general, should continue to benefit employment. The unemployment rate fell below 9% for the first time in 2018, with a notable decrease among young people thanks to job creation, but also a decline in the workforce. The resulting increase in incomes, combined with high household confidence, moderate inflation (within the 4% to 6% target set by the central bank) and lower interest rates, will boost private consumption.

The growth effect of the increase in exports, related to the development of the mining sector (bauxite) and continued elevated aluminium prices, should be offset by the high price of oil, of which the country is an importer, and the upturn in imports related to investments. Poor weather conditions would considerably reduce agricultural exports (sugar, bananas, coffee).

Austerity programme helps to reduce the public debt, which remains considerable

To prevent the government from defaulting on its debt, the IMF provided USD 1.6 billion in assistance in 2016, requesting a programme to consolidate the public accounts in return. The government is expected to pursue its austerity measures in 2019, allowing it to achieve a primary surplus of 7% of GDP, in a repeat of 2018. Despite the second stage of the debt swap programme negotiated with IMF assistance in 2013, which extended the maturity of bonds and reduced the value of coupons, debt service will be large enough to ensure that the government balance is only slightly positive, although higher than in 2018. The success of this programme is due in particular to growth in tax revenues thanks to the increase in activity and employment and the introduction of new taxes. This is expected to continue in 2019 with the revision of the Customs Duties Act. Better control of expenditure will also contribute to the country’s improved fiscal health. Popular support will make it possible to continue these efforts. The gradual decline in public debt, which remains at a high level, is therefore expected to continue, but will be exposed to currency risk, since half of the debt is denominated in foreign currency.

The current account deficit, which is contained, is expected to narrow in 2019. The deterioration in the goods deficit (22% of GDP in 2018) will be offset by a more marked increase in the services surplus (7.5% of GDP) and the continued high level of remittances from expatriates (15% of GDP). However, less supportive economic conditions in the advanced economies, particularly the United States, continue to constrain the strength of these transfers and of exports of tourist services. Inward FDI and portfolio investments are expected to finance the current account deficit almost entirely.

Popular support for the government but challenges ahead

Despite implementing austerity policies since 2016 (the year of his election and the agreement with the IMF), Prime Minister Andrew Holness and his Jamaica Labour Party have maintained popular support because the economy and employment have been relatively healthy. If it hopes to win the next election in 2021, the government will have to tackle crime and poverty.

At the geopolitical level, the government will focus on relations with the United States, its main trading partner and the source of remittances from expatriate workers. It is also likely to concentrate its efforts on regional cooperation to combat drug trafficking and crime, which affect the business environment (75th in the Doing Business ranking) because of the significant cost to businesses.